Macro Expert Tom Lee | What's Next For Markets?

In today’s episode, we tackle the big question: with the massive sell-off earlier this week, is the bull market over? Our guest, Tom Lee, doesn’t think so. We aim to answer several key questions: Why did markets take a hit on Monday? Is there more pain to come? Is the bull market truly over? What about the possibility of a recession? What are the arguments for both the bear and bull cases? And finally, Tom's Price Predictions. ------ 🍵MATCHA | NEW PRICING ENGINE https://go.0x.org/matcha-v2-pod ------ 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap ⚡️ CARTESI | LINUX-POWERED ROLLUPS https://bankless.cc/CartesiGovernance 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🌐 OBOL | STAKE ON DVs, SCALE ETHEREUM https://bankless.cc/obol 🗣️TOKU | CRYPTO EMPLOYMENT https://bankless.cc/toku ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/45?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS 00:00 Intro 04:51 Welcome Tom Lee 09:39 How Bad Was This Really? 13:12 Is It Over? 19:22 What Happens Next? 22:22 Carry Trade Risk 23:52 The Recession Case 28:00 Comparing To The Past 31:35 Why Tom Was Right 36:05 Wall St Temp Check 40:42 BTC And ETH Price Predictions 43:14 Election Impact ------ RESOURCES Tom on X: https://x.com/fundstrat ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:04Ryan Sean Adams?

  Welcome to Bankless. This is Ryan Sean Adams. I've got a big question going into today's episode. I'm sure it's a question on your mind as well. We had this insane sell-off earlier this week and it feels like everyone in crypto is just caught licking their wounds and wondering. They've got a question on their mind. Is the bull market over? We have a guest today, Tom Lee, who says it's not over, not by a long shot. We'll get to that conversation in just a minute, but first want to shout out our friends over at Matcha. During crazy weeks of volatility like this, I'm really thankful for Matcha. They are the OG decentralized exchange aggregator. They'll give you the best price on any trade size, especially the big ones. One-time token allocation means your tokens are never at risk of smart contract exploit.

• 0:47Ryan Sean Adams?

  It's also incredibly user-friendly. If you want to get serious about your DEX trades, Matcha is what I use. It's what David uses. You can go to matcha.xyz to get started. Okay, so back to today's conversation with Tom. My goal in today's episode was just to get a few basic questions answered. They're basic questions, but there's a lot of nuance to them as you'll hear in today's episode. First, I wanted to know, why exactly did markets get thumped so hard on Monday? Is there a method to this madness and is there more pain to come? Next, the question on my mind is of course, is the bull market over? This word recession, is that actually going to come to pass? Are we going to have to pause the bull market and get over some things first?

• 1:30Ryan Sean Adams?

  What are the bear and bull cases at this point in time? And lastly, what are Tom's predictions for price with respect to crypto? He's been a longtime crypto bull on CNBC. I saw him as early as 2017 talking about crypto. So he's seen a pivot in Wall Street appetite here recently and that's been a fantastic pivot, a positive pivot. What's next? Thanks to Kraken for making this episode possible. You can go from fiat to crypto in seconds. Create a Kraken account so you can be ready for the next leg of this bull market whenever it happens. Let's go hear from them now.

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• 4:16David Hoffman?

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• 4:51Ryan Sean Adams?

  Bankless Nation, I'm very excited to introduce you to Tom Lee. He is the Head of Research at Fundstrat. He's also a CNBC contributor and that's actually where I saw Tom first. I remember it was way back in 2017, before Bitcoin and crypto were cool on Wall Street. No ETFs back then. And I remember Tom being contrarian bullish on crypto way back then. I think maybe some anchors thought he was a little crazy. My opinions changed in 2024. Tom, welcome to Bankless. Thank you. Hey, we're going to get to crypto in just a minute. I know you have thoughts and have had longstanding thoughts on crypto. But first, we just have to talk about this, the downturn. I mean, some people are calling this actually Black Monday. I don't know if it warrants that title,

• 5:35Ryan Sean Adams?

  but it just like the market events popped on my radar when I saw on Sunday, just this last Sunday, Ethereum was trading down like 25%. Bitcoin's like down 15%. Anyway, can you tell us what happened earlier this week? What is the, what is the event on Sunday and into Monday?

• 5:52Speaker 02

  Well, Ryan, that's a great question. I think that we'll probably never know the true reasons, but I would say the things that are high on the suspect list are two things that happened starting last week. One was, I think, sort of the most immediate trigger was the Friday jobs report, which was the employment report for the US for the month of July. And that showed a pronounced weakening of hirings. You know, there were only 114,000 jobs added. That was really one of the first big misses since the start of the pandemic. And I think

• 6:32Speaker 02

  it really laid to, it really fueled fears for investors that two things were underway. One was, there's this rule called the Saum rule that Claudia Saum wrote, which is if unemployment picks up 50 basis points, you're already in a recession. And that report showed unemployment had picked up 50.5% from the lows. And the second was that the Fed or Reserve had a chance to cut rates just two days earlier that they didn't. So now the market sort of panicked because they're like, well, the Fed can't really do anything until September. And it put downside pressure on markets. That was, I think, the first trigger.

• 7:14Speaker 02

  The second trigger, which might actually have a trigger to the trigger, but the second trigger was that same week, the Bank of Japan raised their overnight rates by 15 basis points. It really was slightly positive already, but it went to 0.25%, which for Japan's the highest overnight rates since the financial crisis. And that triggered what looked like to be a reversal of a lot of what they call carry trades, because the yen weakened further, oh, sorry, the yen started to rally. The yen had been weak, but it had been rallying.

• 7:53Speaker 02

  And that was making the carry trade, which is you borrow yen and then you buy other currencies, look unattractive. The only reason I'm not sure if these are the triggers is, you know, you never know.

• 8:06Speaker 02

  And I know some of my colleagues at Fundstrat have actually pointed out that the intervention, you know, there could have also been intervention by the Bank of Japan on currencies because that started on July 12th. That's really when the yen began to weaken.

• 8:25Speaker 02

  And I'm sorry, just strengthen. I'm getting these conversions mixed up. And the reason is that at 160 conversion, that sort of offsets the benefits of weaker currency on exports versus the inflationary pressures. And so, you know, it was really on that date that the yen started to rally. So, sorry for the long explanation. We really won't know, but there was a lot of panic and deleveraging that took place.

• 8:49Ryan Sean Adams?

  Okay, a lot of panic on the back of recession fears due to unemployment numbers on Friday, and then this yen carry trade, which people are talking about. There's also talk about maybe the conflict in the Middle East and something heating up there that's kind of unknown. Kamala Harris White House, sort of the market may be reacting to that and saying, well, like, maybe it's not as favorable if the Democrats win the White House again. AI just being incredibly frothy this year. Could it have been one of those things as well?

• 9:18Speaker 02

  Yeah, I mean, those are all like valid contributing factors too. Yeah. And as you know, like, when it comes to war, markets don't like the buildup, you know, so they always say you sell the buildup, you buy the invasion. So we'll have an idea of how markets really feel once the retaliation starts.

• 9:39Ryan Sean Adams?

  Okay, so can I get some context on how bad this actually was? I saw this chart of the VIX, right? And like, you see these lines going up on the VIX in 2008, it goes crazy, and then like COVID 2020, and then, and then this event on Sunday and into Monday. And it looks spiky. And of course, like, 2008 was world-changing, and as was COVID. And this had a similar kind of like effect on the market. And indeed, I haven't seen a down day on crypto on a weekend of like 20% plus in quite a long time. And crypto

• 10:19Ryan Sean Adams?

  kind of reverberates some of this as well. But like, how bad was this? And what's the likelihood that we get some aftershocks, afterbooms, that this continues?

• 10:31Speaker 02

  I mean, it was pretty bad. I think you kind of highlighted one of the best measures for it, which is the VIX, the spot index, and it did, it hit 60. And, you know, again, it's not clear why the VIX hit that level. You know, there's many reasons it spikes. I mean, it's basically the expected volatility in markets, and it did soar. Is it because the carry trade was already short vol, so that's why they had to cover, and that's why it spiked? Or is it the longs were trapped over the last few days, especially over the weekend? And one way to protect is to go, is through the VIX, is through trading volatility? Or is it just

• 11:13Speaker 02

  the market was so uncertain that that's what happened? Because, you know, that's what happens in panics. In fact, the skew, the skewness of the puts versus calls actually went to minus 25. And, you know, again, that is a pretty rare reading. It happens usually near the end of a panic. So I think there was definitely a lot of panic, a lot of margin calls, as you can imagine. So I think margin clerks were really busy yesterday. And I think a lot of that dust is settling today. But it does sound like a lot of it was retail liquidations. I think high net worth and institutions were actually buying yesterday.

• 11:51Ryan Sean Adams?

  Okay. Do you think there's any, anything to maybe uncover at some point in time? Do you think any like major funds got sort of wiped out? I mean, we were, we were watching this in crypto, and Jump Crypto was just sell, sell, sell on a lot of, you know, their crypto assets. You know, that's not definitive proof of what's going on. But like, obviously, when this sort of cascading, you know, high volatility days happen in crypto to the downside, people get liquidated. And it can get pretty ugly out there. Do you think some of that will, like, we'll see evidence for that in the, in the days and weeks to come?

• 12:29Speaker 02

  Yeah, I mean, I wouldn't be surprised. Yeah, the jump which happened over the weekend was really stood out. And as you know, short volatility was a crowded trade. So anyone being caught short volatility on a spike to 60, I mean, that that is deadly. Last year, on a smaller spike in volatility, especially across rates, had already triggered the failure of a very large multi-billion dollar hedge fund in the US. And I don't really want to name that fund, but you know, viewers can sort of look back. And so I, I wouldn't be surprised if there's a couple of failures and it'll be revealed in coming days.

• 13:12Ryan Sean Adams?

  Okay, well, maybe there's a binary here. It's it's either over, that was sort of a Sunday blip, and then we sort of resume the bull market that that we've been in, or it's not over, and there are worse things to come and like more dips and more volatility, etc. What what's what's maybe the case for each? And where do you fall on that argument?

• 13:38Speaker 02

  I mean,

• 13:40Speaker 02

  we're in the camp that this was a growth scare. And, you know, if the trigger was either the jobs report Friday, or even this carry trade unwind, those are temporary effects anyways for markets.

• 13:56Speaker 02

  You know, to be concerned it's a larger effect, one has to believe that a recession is already starting, you know, so that the Fed can't act to contain the ripple effects or that financial conditions tightened in a way that require more intervention and that essentially dilutes the ability for stocks to recover. And as you know, yesterday, and I think a lot of people talked about it, the carnage was primarily in the equity markets. Credit was actually really well behaved, whether you looked at CCC or high yield or spreads or bond volatility.

• 14:41Speaker 02

  You know, there's a VIX for the, you know, for long bonds, VXTLT. All of those were relatively behaved. So this really did look a lot like an equity panic. And there is a, you know, a rule of thumb that we used to use at JP Morgan, which is that, you know, bonds lead stocks. So when stocks divert like this and there's panic, it's not, it shows you people were trying to get liquidity. They weren't necessarily responding to something had changed. And so if the selling frenzy is over, the recovery should be pretty sharp for risk assets, knowing of course that we're in August.

• 15:21Ryan Sean Adams?

  Right, exactly. So let's say it was a growth scare, then what's kind of your base case assumption? Does it take a while to heal from this? Do we sort of resume the same trajectory that we've been on? Do things change a little bit?

• 15:35Speaker 02

  Well, there's kind of a scarcity or paucity of labor related data in the next month. Cause you don't get another jobs, real jobs report until August, first week of August. Sorry, first week of September for the August jobs report. So that's a month away. But as you know, yesterday, the ISM services had an employment component and that actually showed a recovery. And on Friday, a lot of economists, including our own team, pointed out that there were so many things that made it look like Hurricane Barrel probably affected the jobs report for July. You know, Texas is vulnerable to heat already because when it's hot, you can't, you have to slow down a lot of activity.

• 16:20Speaker 02

  And in Texas, jobless claims rose 20,000 in the month.

• 16:26Speaker 02

  And there was almost a record number of people either employed and, and not working due to heat or part time, turned to part time because of weather, sorry, weather for both cases. And it was like a million in one category and 400,000 other, and both were like six sigma changes in, for, for that reported category in the household survey. So. I don't know. I mean, the only thing is it's incongruent, you know, because jobless claims aren't really consistent with a huge downturn in labor market and a lot of it is Texas, the jumping claims, because ex-Texas jobless claims have actually for the last four weeks been pretty flat. And, you know, a million people lost power in Texas for

• 17:08Speaker 02

  two weeks. So you could see, you could see the knock on effects on the economy from that. So I, I would say I think it's a growth scare.

• 17:18Ryan Sean Adams?

  Okay. So you think it's a growth scare and your, your eyes are really on this indicator of the next jobs report that happens in, in September. And this should tell us whether we are creeping closer to, you know, like using the R word recession, or whether we've been in one, or whether we're like, kind of we resume the growth trajectory. And like, let's say jobs reports.

• 17:39Speaker 02

  I want to make something clear. Interestingly, so you know, if you look at the SOM rule.

• 17:43Ryan Sean Adams?

  Yeah.

• 17:44Speaker 02

  Which is that 50 basis point rise in unemployment rate. Since 19, here, I'm going to pull it up here. Do you know that since 1949, that rule's been triggered 12 times? Okay. And 11 of the, sorry, 10 of the 12 times, you are already one quarter or two quarters into a recession. Two times, a recession was delayed. One was 1959. And the second time is it was triggered in July 2003. And the next recession wasn't until 2007. So

• 18:28Speaker 02

  the SOM rule, the reason, and Claudia SOM herself has disavowed it actually publicly in many appearances in the last four days, is that you, you'd already be in a recession. Her, she made this rule because she wanted a simplified way to be ahead of the NBER. And she's basically saying it's, it's not working because COVID kind of screwed up a lot of the metrics. So unless we're already in a recession, it's a, it's a bad signal. And actually, some weird math, but you know, if you look at forward stock returns from the time this SOM rule was triggered, since the Greenspan era, the three month gain is 8% for the S and P.

• 19:13Speaker 02

  So you'd already be like in a recession, like if it's triggered. So it's not really been, it's actually been a terrible tactical timing tool for stocks.

• 19:22Ryan Sean Adams?

  Okay, so let's say we're not in a recession, jobs numbers come in like reasonably strong in September. Then what happens?

• 19:33Speaker 02

  Uh, well, the Fed starts cutting, but the Fed, I think, again, sorry, I'm speaking sort of

• 19:46Speaker 02

  propositionally because I don't know the Fed. Nobody knows what the Fed's going to do. So I think if we're talking about September, I'm just sort of being theoretical.

• 19:53Ryan Sean Adams?

  Sure.

• 19:55Speaker 02

  But I think that they've committed to, to cutting and the labor market has softened. It's just that it's not recessionary. So they would be compelled to take action. And so it's either 25 or 50. But one variation now of the Fed's reaction function is, as you know, they've been data dependent. And that's been a big criticism of markets because you're, you know, you're by nature always going to be late. And I think there's a real call now for the Fed to essentially become forward looking. I think that's the big change. In fact, Austin Golesby yesterday on CNBC, I don't know if you heard his interview, but he actually used the word forward looking when it comes responding to financial stability.

• 20:40Speaker 02

  That is, I kind of would say that's an important word to keep in mind that markets have been frustrated with a data dependent Fed. And so I think come September, even if it's 25, but they say that they're going to start being more forward looking, especially regarding inflation. I think that, you know, they could do five cuts this year.

• 21:01Ryan Sean Adams?

  And say that happens, then what do we get?

• 21:05Speaker 02

  Well, something to keep in mind is that if the Fed is doing five cuts and their dot plot was three, that's an incrementally dovish Fed. And so I think that that is indirectly going to be interpreted by markets as a Fed put back into play, like put for the economy. But now the economy is the stock market and risk assets like crypto. But there's a practical effect. You know, auto loans, small business loans, you know, which used to use LIBOR, but they don't, they use a SOFR now.

• 21:44Speaker 02

  Credit card debt, home equity lines of credit, adjustable rate mortgages, ARMs are becoming very popular because of the high cost of fixed rate mortgages. Those will see huge drops if the Fed cuts 1.25 percentage points. So there is a true economic catalyst. I mean, that, like if someone says the Fed cutting doesn't make a difference, I mean, this is an economy that's been crippled by high cost and then you're taking that high cost away, that really would revive demand, you know, a time when the consumer still has a lot of room to borrow money, actually.

• 22:21Ryan Sean Adams?

  Do you have any worry that any cuts by the Fed might amplify the carry trade risk that we've seen with the yen, sort of, you know, the stronger dollar type of effect and just like make things work, make the things that we saw on Sunday even worse?

• 22:39Speaker 02

  Well, yeah, that's a good question. I mean, the Fed doesn't want financial instability, but you know, a stock market going up 20% isn't really concerning the Fed, you know? What concerns them is a misallocation of capital and... If capital is put into financial markets because no one wants to do capex, or nobody wants to expand a business because the Fed might crush the economy, you know, you might, we might have to think that by cutting interest rates, the Fed is essentially allowing capital to be put back into the real economy.

• 23:22Speaker 02

  I don't know a lot of CEOs who've been doing capex because why would they invest more at a time when the Fed's tight and is worried about inflation and could crush the economy? I mean, that's not the kind of environment that greenlights capital spending projects. So I think, believe it or not, it's actually, has been an impediment to economic growth, but it also has amplified carry trade because you're right, people seek yield when you have a high cost of money.

• 23:52Ryan Sean Adams?

  Tom, can you make the steel man the argument for that this wasn't a growth scare? That we are maybe in the beginning of a recessionary period of time? That things get more bearish from here? If you were asked to kind of steel man that case, what would you say?

• 24:10Speaker 02

  Okay, so let's flip the hat. I would say, you know what, a recession, as you know, expansions don't die of old age. They get killed by the Fed, right? So, so did the Fed stay tight too long and it's killing, it's already killed the economy? Well, that's one way you kill an expansion. The second way, of course, is you create a shock. I mean, let's like, look at both, but is the economy already in a path to actually crumble?

• 24:52Speaker 02

  The area that's weak right now, we already know there's three areas of recession. Automobiles, auto sales is in a recession.

• 25:01Speaker 02

  You know, whether it's used car prices are gonna free fall tomorrow, we get Manheim, but you know, used car prices have been tanking. And automakers raised prices with greedflation. Now there's inventory piling up, auto delinquencies are up. That's in pretty bad shape. The second area that's in bad shape is durable goods. I mean, people aren't buying appliances, things that installment debt, I mean, it's just too expensive, you know? Credit card debt is, you know, cost of credit is 25%. I mean, who, you know, who's gonna buy a dishwasher with that, those kind of costs?

• 25:41Speaker 02

  And the third is that housing activity is in a recession because it's prohibitively expensive to, to get a mortgage now. And home prices have gone up. It's not clear if they're going up because of tight supply or if it's, you know, for whatever reason, but it's gone up. And it's hard to get money.

• 26:03Speaker 02

  So could those three drive a recession? Absolutely. I mean, a durable's recession and housing is really sometimes where you get a recession. So is housing so far gone that, that is impossible to turn around by the Fed?

• 26:24Speaker 02

  We'll see, right? I mean, if they, if they, if they're worried about inflation, they could put a death spiral in that part of the economy. There's not over investment anywhere else. I mean, the stock market, like, let's say someone thinks it's a bubble. It's not really what causes the recession. It's that too much capital's raised in a bubble and then it's misallocated. That's what happened with the dot com. And then, of course, there could be a shock. I mean, Like what you're pointing out, is the yen carry unwind, is that a shock? I mean, that could be a shock. Is the, is if oil supply is massively disrupted? That definitely could be a shock, right?

• 27:08Speaker 02

  I mean, oil could go either way. It's either going to go up a lot or down a lot, but that could create a shock too.

• 27:16Speaker 02

  And that could just, you know, and that could interrupt

• 27:20Speaker 02

  trading of currencies. I mean, currency stability is important too. So I, I think it's possible that you could have a recession, but really like as I talk it through, I, I would say the housing thing, I'm, I'm not as inclined to think it's going to lead to a recession because we know there's a lot of pent up demand. It's not like you've exhausted demand and it's mortgage rates would drop as soon as the Fed starts cutting, especially adjustable rate. But could oil spike? You know, you have to get oil to around 250 and around 250, the, the debts, you know, the cost of gasoline as a percent household income is enough to be recessionary.

• 28:00Ryan Sean Adams?

  Have we ever seen, have we ever seen a growth scare like this in the past time? That would be analogous because you're like, just looking at the VIX, we see, you know, 2008, 2020, and obviously a lot more happened after the initial like VIX spike, a lot of negative things, right? And it just seems weird that the market, like the whole thing feels weird. It feels weird that the market is so on edge, so fragile, like just a little blip and then boom, you know? The Japanese stock market is down 12% and like it, it feels like we're in a sort of a strange time. And it may be getting back to kind of the, the dot com bubble, right? AI has been on absolute terror.

• 28:46Ryan Sean Adams?

  That could be in bubbly territory, but like just in general, is there anything like this that we have seen in history that would be analogous?

• 28:56Speaker 02

  Ryan, I've uh, I, I want to just point out a couple of things. I'm not trying to oversimplify this, but, um, cause I've been following equity markets for thirty-one years, thirty-two years actually now.

• 29:14Ryan Sean Adams?

  That's approximately three, three crypto lifetimes, I would say.

• 29:18Speaker 02

  Yes, that's right. I'm like, then, yeah, that means I'd have the great-grand crypto children.

• 29:27Speaker 02

  They say bull markets take the escalator up and the elevator down. So, big corrections like this are more associated with a bull market than a bear market. In fact, if you look at oh-eight, for instance, when that market was topping, it was bleeding and bleeding. And then it was towards the end that you were having these get-me-out-of-everything declines. Whereas we, this S and P was essentially, um, fell over three days. I mean, the correction, you know, might be two weeks, but it really is just three days of sheer horror. Um, and

• 30:12Speaker 02

  those kind of panics definitely happened. You know, in 2018, you had the, you had the tantrum around the Fed because Powell was raising rates. And, you know, COVID created a huge decline that was quickly reversed. I mean, that, that was the fastest decline of forty-five percent, I think, in history at the time, right? And as you know, the mistake people made in 2020, and we were dealing with the blowback, was everybody was like, you know what, this is the, the knock-on effects on the economy is just getting started, and we don't even know if...

• 30:55Speaker 02

  You know, how to contain this disease and how deadly it's gonna be, how you're gonna fix it. But the stock market bottomed in March 2020. You know, that was six months before the vaccines were even out. So I think that the Fed can fix these ripples really easily, even if they just do it in September. I know it seems unusual, and it is. I mean, the stock market's been doing great. We had low volatility for two years, and now volatility's coming back. That's what's changed. But I think it's probably just more that this bull market is becoming a teenager, you know?

• 31:35Ryan Sean Adams?

  A teenager, not the end of life, early in its career, not long in the tooth yet. Let's turn to crypto, Tom. So one thing I started this episode with was just the statement that you were bullish on crypto on CNBC in TradFi circles before it was cool. And I remember seeing you on CNBC talking about how Bitcoin, back in 2017, how Bitcoin could reach the 100K range, you said. And this was a pretty bold statement, not just on, you know, like TradFi media, CNBC, but particularly like at a time when Bitcoin is trading like under 10K. It might have been like 6K or something. You're calling for 100,000, right?

• 32:17Ryan Sean Adams?

  This is way back when Bitcoin was very contrarian on Wall Street. I'm curious, what made you bullish back then? Like, what indicators did they use? Why did you hop aboard this train?

• 32:31Speaker 02

  Yes. I think my background and research probably might explain a little bit of that. But in 2017, we spent a good part of that year kind of trying to understand

• 32:49Speaker 02

  Why Bitcoin was actually rising? So, you know, our approach historically in research is like price is the signal. So we don't just, we won't look at something and say, oh, it's a bubble. We'd rather say, is something rising? And is it telling us something? And we have to understand what's happening. So we spent a good part of 2017 trying to build a model that would explain Bitcoin's price history. And then we were really shocked to find out that it was really two variables that simply explained most of Bitcoin's price movement. One was, and these are just widely known, but one was just using the idea of a network effect. So the number of wallets and that there'd be exponential benefit.

• 33:33Speaker 02

  I mean, that's just a well-known effect. I mean, Metcalfe's law has been around for a long time. And the second was that transaction activity per wallet was a secondary explanatory variable. So if you, and back then you had pretty good, you could get pretty good data. It's not really so useful anymore. But that explained like 87% of the price rise of Bitcoin since 2010 or 2011, not for the full history. And so we modeled that forward and we said, the first report we published was Bitcoin, that was in 2017, Bitcoin was 1,200 at the time, that Bitcoin could reach just a simple,

• 34:13Speaker 02

  I think it was 30% increase in wallets per year would get you to, or 30% cumulative increase, 25,000 by 2022 was the initial sort of view. And I, I think that we, you know, we met, were met with a lot of skepticism. The reason I wasn't too skeptical, I used to be a wireless analyst. So before being a strategist, I'd spent 17 years covering technology stocks, first at Kidder Peabody, then Solomon Brothers. And one thing I realized back then was that traditional financial markets, equity investors especially, are generally older people. They're in their 40s and 50s and they don't

• 34:58Speaker 02

  Understand that the economy is driven by young people. I was twenty, like three, twenty-four at the time when I started writing wireless research as a senior analyst. I was really fortunate. I got the chance to be a publishing analyst really young. And being that young, I saw how useful cell phones were. There were only thirty-four million cell phones in ninety-three. And today there's seven billion. So just imagine people were skeptical of cell phones in ninety-three because they thought they were yuppie toys. But I, I found them and being in twenty, how useful they were for so, in terms of social life.

• 35:38Speaker 02

  And so I had seen how people who manage money already have established their lives. They're already making money on the incumbents. They don't want new technologies to be disruptive. And so that's exactly really what happens with crypto. Crypto is really very hostile to the traditional banking system. And I think that explains why there's such a negative bias towards it, even today, actually.

• 36:06Ryan Sean Adams?

  Yeah, it's fascinating. I kind of wonder what people thought back in twenty seventeen. It's just like, as you were talking about this, but I think your analog to cell phones is right. I mean, that's another Metcalfe's Law thing, right? The value of the network grows as more people have cell phones. It's no different than the number of Bitcoin addresses there are, the number of, you know, like value exchanged on chain. So you're just kind of extrapolating to that. I think the other thing that tripped maybe TradFi up at you tell me is just they understood Metcalfe's Law through internet tech stocks and that sort of thing. But this was a new asset that you couldn't buy, you know, inside Charles Schwab. And you couldn't see necessarily track in Bloomberg. You couldn't custody it with your regular exchanges. And so it was foreign from that perspective, too.

• 36:50Ryan Sean Adams?

  What's the current temperature? So now, obviously, there's been a lot of changes from twenty seventeen to twenty twenty-four, including with a Bitcoin ETF. We have an Ethereum ETF. We have people like Larry Fink from BlackRock talking about pivoting on Bitcoin and the virtues of tokenization and, you know, releasing their own crypto ETF products with Bitcoin and Ethereum. What's the current temperature on Wall Street? How has it changed and what additional work is left to do? You sort of alluded to, not everyone is convinced yet. What's, like, what's the current environment?

• 37:28Speaker 02

  I mean, things have definitely moved a long way.

• 37:33Speaker 02

  But you know, six years is not a lifetime in traditional financial world. The financial industry, banking, has adopted new products. I mean, think about credit default swaps. That was invented in the 90s and

• 37:49Speaker 02

  on spreadsheets. And that was initially just literally bets on a default. And now it turned into a bigger market than the underlying cash bond market.

• 38:02Speaker 02

  And so crypto is still in the earliest stages. I give you an analogy.

• 38:10Speaker 02

  Telecom was originally wireline and long distance. And that was $160 billion revenue business. And wireless, even by 1999, was like, you know, $10 billion. It was only one tenth the size, you know, and I'd been covering it almost a decade. But once wireless got large enough in terms of number of people with cell phones, all the innovation of communications took place on mobile phones. Right? Like, you don't have smart wired phones. Or you don't have like browsers on your wired phone because you don't need it. You don't like it has no usefulness.

• 38:54Speaker 02

  And so all the innovation, if you think about financial products and how you change, like what loyalty is or money or you tokenize assets, it's all going to take place probably on the blockchain. And so that is that like that crossover hasn't happened yet because you know what? The banking industry still makes plenty of money, just like long distance companies. And it's kind of the burden is on the on the industry to be quite innovative in a really secure way that doesn't scan people through the innovation. It's just like you can watch a parallel right now in electrification of cars.

• 39:37Speaker 02

  Because so many, you know, if you look at who adopts EVs, it's all young people. Who likes?

• 39:45Speaker 02

  ICE cars, internal combustion, it's all the same people that buy, you know, who are money managers, you know, it's all people over age 50 because they're like, you know, I like the sound of a V8 engine or, you know, I don't want to drive a glorified golf cart. But actually, the reality is like the smartest cars and the most intelligent ones and the safest pretty soon are all going to be electric cars. So what, that's the same battle, like Elon Musk's battle today, and he's fighting against the incumbents like GM and is really what crypto is battling. But I think the industry hasn't done a great job of necessarily innovating yet.

• 40:26Speaker 02

  You know, price is still very compelling and like the movements in price and products around trading prices, but it hasn't yet done, it hasn't really gotten to that smartphone moment yet.

• 40:42Ryan Sean Adams?

  Another reminder, I guess, that demographics is destiny when it comes to kind of, you know, consumer preferences and that's investment, investors as consumers as well. So I'm kind of curious, Tom, what's your forecast for Bitcoin now from a price perspective?

• 40:58Speaker 02

  Well, there has been some damage from the sell-off and the liquidations. And then there's been supply because of Mt. Gox and whatnot. But I think it's still,

• 41:11Speaker 02

  we still think risk assets are going to have a really big second half. Maybe after the election, though, so let's say August to October isn't like the time I think anyone should be that heroic.

• 41:24Speaker 02

  And, but if the S and P, you know, has 20% upside from here into year end, I think Bitcoin can easily get to 100,000 or more. And so I know it seems like very difficult, but it is important to keep in mind like Bitcoin. Doesn't move in a linear fashion anyways, right? It has step function gains. I mean, our team has published something from 2017, which was the rule of 10 days. If you take out, it's rule number five, but if you take out the 10 best days of Bitcoin in any year, it actually has essentially negative returns. I mean, Bitcoin makes all of its percentage gains in a handful of days.

• 42:03Ryan Sean Adams?

  It's kind of a funny asset from that perspective because it's kind of elevator up and elevator down, I guess, in the world of crypto, isn't it?

• 42:10Speaker 02

  It's a high-speed elevator.

• 42:12Ryan Sean Adams?

  Yeah, that's right. How about Ethereum or other crypto assets? Do you have any predictions on this?

• 42:19Speaker 02

  Yeah, I mean, I like, because I spend time with talking to Sean Farrell, who's our head of digital asset strategy. And, you know, I mean, there's really three, what he considers core crypto assets, Bitcoin, Ethereum, and Solana, and for different reasons. Because, you know, Ethereum was originally innovative because of the smart contract, but really its strength is now the community that supports it. And it's, it's, it's true with Solana. Solana, you know, has a really dedicated, rich community. And that's where, that's why you can eventually hope to see some innovations. I mean, even Bitcoin can be quite innovative.

• 43:04Speaker 02

  But all of that is, I think, still to come. I mean, there's a lot, but those would be the three that, that our team is betting on.

• 43:14Ryan Sean Adams?

  So I guess back to the, the current market that we find ourselves in. Do you have any thoughts on the election and how that might change things? You said, don't be heroic from now until October, but then, of course, we'll have election results. And then what? If it goes in the Republican direction versus the Democrat direction, is there any difference in your mind from an investor perspective?

• 43:44Speaker 02

  You know, markets really, people care so much in this election. Because people care about so many issues, whether it's you know, abortion, or trans rights, or family values, or own your own crypto. And and that's why this is, it's, there's a lot emotionally at stake. For from November 2024 to November 2025, if someone said, will either party winning make a difference for stock market returns? I don't think it's going to make a difference until then. I think it makes a huge difference on what sectors lead.

• 44:28Speaker 02

  Because we know Trump is running on a platform of pro Bitcoin. Which I think is very admirable. I don't even have any understanding why the US should be hostile to Bitcoin. The second is that he is all for deregulating and reducing the regulatory encroachment of businesses. That's been a huge problem for small businesses and for large businesses, and it's an impediment to M&A. And the reality is, is that I think Trump also is more real estate friendly, so he'll try to implement policies that are protective of commercial real estate. So I think that there's a really big difference in what sectors lead.

• 45:13Speaker 02

  I think if Kamala wins, it's Silicon Valley friendly. Because she's from California, and I think that's really still a very big base of support. So I think it's, you know, strong for the fangs. But if Trump takes the White House, it's, you know, huge for Bitcoin. I mean, you know, he's talked about the importance of even using Bitcoin as a, as a potential source of treasury holdings. And reserve holdings. It's very pro small caps, because all the things that would come with Trump would, would be a huge benefit to small cap stocks, too.

• 45:53Ryan Sean Adams?

  Tom, this has been great. I know during these times you were in very high demand and have to jump to your next conversation with someone. Thank you so much for, for joining us on Bank List today. This has been a fantastic conversation.

• 46:05Speaker 02

  Yeah, nice talking to you.

• 46:06Ryan Sean Adams?

  I also want to say, if you're interested in some of the research that Tom puts out, he's got daily videos, he's got market alerts, webinars, all sorts of materials for people who are interested in investing across the spectrum, digital assets and other assets. He's got that stuff going on at fsinsight.com. And there is, by the way, a 30-day free trial right now for anyone listening to Bankless, so there'll be a link in the show notes for that. Tom, thank you so much for being with us today.

• 46:35Speaker 02

  Yeah, thank you.

• 46:36Ryan Sean Adams?

  And as usual, got to end with this. Of course, you know, markets are risky, so is crypto. Crypto is a market. You know what that means. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

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